Manufacturing in the New York region expanded in March at the fastest pace since June 2010, indicating factories are still driving the expansion.
The Federal Reserve Bank of New York
U.S. community banks are gaining strength even though the economy is improving only moderately, Federal Reserve Chairman Ben Bernanke said Wednesday.
The Fed chief delivered prerecorded remarks on a video monitor before a convention of community bankers in Nashville. The speech resembled one he gave last month in Arlington, Va.
Bernanke said community bank profits were higher in 2011 than the previous year and bad loans were decreasing. He also said they have built up cushions against loan losses. Community banks have assets below $10 billion.
Bernanke did not mention the Fed’s interest rate policies in his taped speech. During the February speech, Bernanke defended the Fed’s decisions to keep interest rates at record-low levels.
On Tuesday, the Fed repeated its plan to keep short-term interest rates near zero through 2014.
In Wednesday’s speech, Bernanke sought to counter criticism that the sweeping overhaul of financial regulations that Congress passed in 2010 was imposing unnecessary burdens on banks.
“We take quite seriously the importance of evaluating the costs and benefits of new rules,” Bernanke said in his remarks to the national convention of the Independent Community Bankers of America.
Bernanke said that most of the provisions in the 2010 law were aimed at addressing the threats posed to the financial system from the largest financial institutions and not community banks.
“We will work to maintain a clear distinction between community banks and larger institutions in the application of new regulations,” Bernanke said.
Household spending may be about to pick up after stagnating for three straight months as employment and incomes climb and the weather turns more seasonable, giving the U.S. economy a lift.
QUESTION: I had an unusual year in 2011, and my income exceeded the eligibility limit for a Roth IRA. But I had already put $5,000 into my Roth account, and my tax software said I owe a penalty for having the Roth. Do I have any option other than paying a penalty?
ANSWER: You might still be able to have a Roth IRA and avoid paying a penalty if you are willing to take a circuitous route.
Contact the brokerage firm or mutual fund company where you have the Roth and say you want to turn your Roth into a taxable IRA instead. The conversion process is called “recharacterizing.” Once the simple paperwork is done, you will have conformed with IRS rules and avoided a penalty, said James Lange, a certified public accountant in Pittsburgh and author of “Retire Secure.”
But you might not want to stop there, because taxable IRAs are not as attractive as Roth IRAs. If you keep money in the taxable IRA until you retire, when you start removing funds you will have to pay taxes on whatever the account earned. In a Roth IRA, that won’t happen: Anything you remove for retirement is yours free and clear without paying any taxes.
So it may be worth going through the next step in your circuitous route. After you have stashed your Roth money legitimately in your taxable IRA, go back to your mutual fund company or broker and say you want to make another change. This time you will convert that taxable IRA back into a Roth IRA.
Once your money is in the Roth IRA, you will have all the advantages you originally wanted. Year after year, your money will grow in the Roth without being taxed. And when you retire, you can remove whatever you want without paying any taxes.
I know this round trip in IRA-land sounds crazy. But a penalty would have applied in your case only because you contributed to a Roth IRA in 2011. You won’t owe a penalty if you convert a taxable IRA to a Roth, regardless of income. So you have discovered a quirk in the tax system.
You also might be in a more complicated situation than first meets the eye. If you have only one $5,000 Roth IRA and no other IRAs of any kind, the round trip I just described is a simple process.
But if you have other IRAs, it gets more complex and will require paying some taxes, said Beverly DeVeny, IRA technical consultant with Ed Slott and Co.
The IRS doesn’t let you segregate your IRAs. So if you have more than one IRA and are moving money to a Roth, you have to compute taxes based on the sum of all IRAs.
If all you have is a $5,000 Roth now, convert it to a taxable IRA and then quickly turn it into a Roth, you won’t face these complications. But there could be another wrinkle if the Roth that you once opened with $5,000 has earned money on investments.
Say you have earned $100 in a mutual fund in the Roth. You will recharacterize $5,100 in the taxable IRA to avoid problems with the IRS. If you turn that into a Roth again, however, you will have to pay taxes on the $100 you earned. That’s not going to be a painful tax experience, but you will have some reporting to do with your tax return using Form 8606.
Meanwhile, for people considering opening Roth IRAs, here are the income limits.
For the maximum $5,000 in a Roth IRA for the 2011 tax year, your modified adjusted gross income needs to be less than $169,000 for married couples.
People with incomes up to $179,000 are allowed to stash away less than the $5,000 maximum. For singles, $107,000 is the cutoff for the maximum, but you can deposit lesser amounts with incomes up to $122,000.
Keep in mind that the maximum contribution for people 50 and over is $6,000.
For the 2012 tax year, married people can make maximum contributions with incomes up to $173,000 and partial contributions with incomes up to $183,000. For singles, a full contribution is allowed up to $110,000 in income, and a partial contribution up to $125,000.
And remember, even if your income is too high for a Roth IRA, you can open a tax-deductible IRA if neither you nor a spouse have retirement saving plans, like a 401(k) at work.
The Federal Reserve is pushing back against some banks
China may report tomorrow the slowest inflation in 19 months and industrial-production growth near a two-year low, increasing odds the government will step up efforts to stimulate the economy.
Consumer prices probably rose 3.4 percent in February from a year before, after a 4.5 percent increase in January, while output growth eased to 12.5 percent, Bloomberg News surveys of economists indicate. Commerce Minister Chen Deming yesterday signaled that export gains were less than analysts forecast.
Premier Wen Jiabao
Turkey is reducing government debt this year by the most since 2008, spurring the best bond rally in the emerging markets.
The Treasury plans to lower debt 16.5 percent by stepping up repayments, according to its website. Lira-denominated bond yields have plunged 142 basis points in 2012, the most among emerging markets, data compiled by Bloomberg show. The extra yield on Turkish dollar bonds over similar-maturity U.S. notes fell to a three-month low of 322 basis points on March 1, JPMorgan Chase & Co.
Manufacturing in the U.S. expanded in February at a slower pace than forecast as orders cooled.
The Institute for Supply Management